Why utilities and environmentalists can find common (green) ground
Ex-FERC Chair Norman Bay argues clean energy can gain more ground if utilities and enviros team up
The following viewpoint is from Norman C. Bay, a former Chairman of the Federal Energy Regulatory Commission.
Leadership to create a cleaner, more sustainable grid increasingly comes from states, cities, and businesses. Thirty-seven states have renewable portfolio standards or goals; ten states even have carbon markets. More than a hundred of the best known companies in America — including Microsoft, Amazon, Apple, Google, Facebook, Nike, Proctor & Gamble, GM, Walmart, and Mars — have committed to using 100 percent green energy.
Yet there is room for significantly more progress based on bargains that can be struck between unlikely allies — the power industry and environmentalists. They each have something that the other wants. Utilities seek load growth; environmentalists want decarbonization. Electrification, particularly of transportation and space heating, achieves both objectives.
Transformational change has swept through the power industry over the last few years. Market forces, not environmental regulations, have largely driven the change. An abundant supply of cheap natural gas has prompted fuel switching from coal to gas for power generation. In 2016, for the first time in the Nation’s history, more electricity was produced from gas than from coal (34 percent vs. 30 percent). This matters because gas burns more cleanly than coal, emitting about half the carbon.
At the same time, the cost of renewable energy and clean technology has continued to plummet. A recent Lazard study shows that the levelized cost of new, unsubsidized wind and utility-scale solar generation is cheaper than coal and gas in many locations. In 2016, wind and solar produced 6.5 percent of U.S. electricity and accounted for more than 60 percent of new generation capacity.
As a result, the grid today is far cleaner than in the past. In 2016, emissions were 24 percent below 2005 levels. In other words, the United States is three-quarters of the way to the EPA’s Clean Power Plan target of a 32 percent reduction by 2030, even though the Clean Power Plan has been stayed in federal court and the EPA recently proposed a repeal.
Not only is the grid cleaner, but wholesale power prices are also lower, declining by double-digit amounts across most of the United States over the last few years. In 2016, wholesale power prices in Texas averaged $25 per megawatt hour, less than half the price a decade ago. In another regional market, PJM, prices averaged about $29 per megawatt hour, the lowest in almost two decades.
In 2016, more carbon emissions came from the transportation sector than the power sector. This last happened in the late 1970’s. To achieve deeper decarbonization, emissions from the transportation sector must be reduced. A number of countries, including the United Kingdom, France, Norway, Netherlands, India, and China, are phasing out internal combustion vehicles.
In response to public policies and potential demand, automakers are developing an array of new electric vehicles (EVs). In July, Tesla launched its first mass-market car, the Model 3. Other major manufacturers are investing $90 billion in an increasingly electric future. EVs have become a more attractive option for consumers, as they drop in price, their range extends, and charging infrastructure is built.
All of this, in turn, provides the basis for collaboration between the power industry and environmentalists.
Low power prices and stagnant electricity demand have buffeted utilities. Energy efficiency has flattened electricity load across most of the United States, a trend that is expected to continue for the foreseeable future. More Americans have installed rooftop solar panels, which further reduces demand. Many in the power industry worry about the sustainability of their traditional business model.
Environmentalists fear losing ground during an Administration that has repudiated the Paris climate accord and the EPA’s Clean Power Plan.
Here’s the deal: the power industry commits to an even cleaner grid in exchange for support from environmentalists on electrification. This allows the power industry’s on-going decarbonization to be leveraged throughout the economy.
For utilities, electrification is the silver bullet to flat demand. A 2017 Brattle Group study concluded that the widespread electrification of transportation and space heating could nearly double utility sales by 2050 while achieving deep decarbonization.
In exchange, environmentalists should seek the power industry’s commitment to creating an even cleaner grid. This could include investments in wind and solar generation, grid modernization, energy storage, energy efficiency, and demand side management, as well as support for EV charging infrastructure and time-of-use rates.
Instead of responding to market change, utilities would be helping to drive the change. They would be viewed as part of the solution, with clear marketing and financial benefits. One major utility, Southern California Edison, has already issued a white paper that proposes continued decarbonization of the electric sector, accelerating electrification of transportation, and increasing electrification of buildings.
Many states, cities, and businesses, including automakers, are apt to be willing partners to this bargain. Their role is critical in supporting prudent investments by utilities in a cleaner grid, as well as EVs and other forms of electrification.
While the power industry and environmentalists will not always see eye-to-eye and each side must have reasonable expectations, they have powerful incentives to work together. Making the environmental choice is increasingly the economic one. It’s good for business. And whether the push is based on the profit motive or the environment – whether it’s one shade of green or the other – the result is the same: a cleaner, more sustainable grid, and a lower-carbon economy.
Norman C. Bay is the former Chairman of the Federal Energy Regulatory Commission (FERC), a partner at Willkie, Farr & Gallagher LLP in Washington, D.C., and Senior Fellow at Duke University. The views expressed here are his own